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    What a well-worded long-winded inaccurate piece of revisionist history and misunderstanding.

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      (also, read the footnotes…probably the best bits of the article are scattered through there)

      (also also, when he bandies about Baumol’s Effect, what he’s referring to is more aptly name Baumol’s Cost Disease. Note the different tone.)

      (also also also, note that Graham was born in 1964–this helps place his subjective timeline a bit better)

      To elaborate on my point, let’s look at the final paragraph or two and see what Graham’s getting at:

      • A lot of people getting rich do it by creating wealth. Graham clearly wants to say all here, but knows that by wording it to metaphorically wag his eyebrows suggestively he can get away with it.
      • If you get rich creating wealth, you will create increasing economic inequality. This is said so that the assumed counterposition of “Hey let’s decrease economic inequality” can be attacked (sloppily) as “Well then you can’t have people creating wealth, so that’s bad!”.
      • Variation in productivity is what we really mean, and that can’t be fought with taxes and subsidies. Graham again shifts the goalposts around a little here; introducing a new term that isn’t well-defined and then making claims about its behavior makes for difficult rebuttal on its own terms.
      • Fragmentation due to variation in productivity is back again and won’t leave. Graham conveniently ignores a lot of recent developments and historical examples where a breakthrough is widely adopted and evens the playing more for everybody, which I’ll touch on again.
      • Graham is worried that we must accept this or doom happens. No shit, because the comfortable lifestyles and exploitative business practices of modern startups and accelerators like YC are predicated on this idea and its inherent “rightness”.
      • We should not bother with policy tweaks because that’s not how we got here. Inoffensive, possibly defensible depending on which history you read.
      • Instead, let’s embrace the fragmentation and figure out how to mitigate the bad parts. This is clever two ways: first, by the second-order dissociation of “economic inequality” to “variation in productivity” to “fragmentation” Graham avoids saying (while still saying) “Let’s embrace economic inequality”; second, Graham’s “mitigating consequences” reads as “help the poor” when it really means “keep our Teslas and prevent peasant uprisings.”

      Make no mistake: Graham very much has an intended audience here.

      There are several things I think Graham gets very incorrect.

      First, some rhetorical flourishes he engages in are cute but waste time:

      The bits about his childhood range from irrelevant to disingenuous. Who hasn’t in their teenage years felt like the system is rigged, that the world is flawed and disingenuous? That’s virtue signalling on his part for techies with a libertarian or faux-elitist viewpoint. “Mmm yes the common man, unaware of how fake everything is </tips fedora.>”. Playing to a crowd.

      The age of recollection for him in this is 13–so, 1977. His comments about cars and tailfins? Totally wrong if you look at cars from that era you don’t see a lot of spurious chrome. He probably was thinking more of cars from the 50s. 70s cars were, if anything, mainly US companies figuring out how the hell to deal with the energy crisis.

      He also makes a slick little backhand against unions in the pointing out their inability to have antitrust actions taken against them–which he then slyly references in a wink to services like Uber and other sharing-economy by suggesting that maybe they count, sorta, as unions.

      Second, he outright ignores several historical events that had massive effects on the economy:

      There is no mention of the Vietnam War. This was huuuuuge, and had a notable effect in both college enrollment and in civil rights. If Graham’s argument is about increasing wealth inequality being inevitable and a result of a return to the status quo, he should probably at least mention a conflict that helped fund education, incentivize education, and which massively strengthened the political (and hence economic power) of minorities.

      There is no mention of the Cold War, especially of the Space Race. The amount of money flowing around for small job shops doing contracting work on military equipment was nontrivial. The entire development of APRA and the increasing access to government contracts for contractors and subcontractors is a direct counterpoint to his “only a few national companies” narrative. The entire rise of standarized parts from this political climate (MIL-STDs) made a lot of market opportunities possible that weren’t before. Silicon Valley was built on little companies, not national companies, doing semiconductor work and specializaed IC design.

      There is no mention of standardized shipping containers, and the itenerant rise in global trade. It’s this exact trade that made possible both the outsourcing he mentions and also the disruption of existing national companies–and most importantly, the leveling of the playing field and reduction of variance in productivity.

      There is no mention of the 70s energy crisis and resulting stagflation and high unemployment. This recession had a nontrivial effect on both the starting of new businesses and the continued existence of older national corporations in the face of newcomers.

      There are a lot of other things that I too am leaving out, but hopefully my point is clear: there were waaay too many factors to support a simple narrative of “consolidation -> ww2 -> ogliopoly -> 2000s fragmentation” that Graham is trying to sell us.

      Third, and perhaps most annoying to me, is that Graham discounts both small businesses and rising-all-tides phoenomena.

      Apparently, all of the little contractors and job shops and mom/pop stores and restaurants didn’t exist in the 20th century–Graham kinda handwaves this by claiming that people only were told to be “executives” and not to found their own companies. I think that’s patently false, and if we were to look at the number of businesses started every year in the 20th century (excluding shell corporations, presumably) we’d see a large, long-tail of local businesses. Hell, look at the backs of old issues of Popular Mechanics or Popular Electronics or even old newspapers to see that there was a vibrant ecosystem of mail-order businesses starting up and flourishing and floundering and dieing off. People clearly were still entrepreneurs.

      (And honestly? That’s my biggest problem with Graham, both here and in general. He has to push an agenda that entrepreneurship is special (at least the modern type is!), that it has never existed before (by rewriting history or selecitvely recalling it as he does here), and that only the businesses that fit the YC-style model (rapid growth and slash and burn) are real comapnies worth considering.)

      Fourth, Graham does a really poor job describing wealth–which is unfortunate, because it’s kinda at the core of his ramble here. Without a clear definition, his sidelong equating of wealth creation with permanent increasing inequality can’t be considered in any rational way. We can consider wealth under many definitions–and I’ll give an incomplete listing here:

      • currency (e.g., pounds fucking sterling)
      • raw goods (e.g., sheep)
      • processed goods (e.g., wool suits)
      • production capital required to convert raw goods into processed goods (e.g., textile mills)
      • intellectual capital (e.g., trade secrets on sheep maintenance)
      • holdings of slots of employment (e.g., shepeard jobs at Sheeply)
      • market value/pay-to-play (e.g., being the most-hyped sheep products startup and thus most saleable)

      Each of the different types of wealth there are different in how they are deployed. Most people probably think in terms of currency, a slightly fewer in terms of possession of goods or perhaps tools. Fewer still figure in terms of capital required to fabricate or make those other forms of wealth. Perhaps fewest will think in terms of jobs created (for wealth redistribution).

      And that last category? The “wealth” of being the most sought-after investment vehicle. Notice that out of all of the rest, this form is both the most variable and also the most rewarding (economically)–and yet, it is also the only one that can’t be shared without destroying its value.

      When Graham writes this essay, he uses “wealth creators” and signals everything but that last category–when the core of his business success post-Viaweb is primarily kick-the-can startup reselling based on hype.

      Don’t mistake him for supporting wealth creation in any traditional sense, because that isn’t what he’s trying to sell you on. He’s trying to say, in a hamfisted shy-libertarian way, that we should ignore economic inequality because that’s the way it’s always been, that’s the way it’s supposed to be, and that we’ll endanger new wealth if we try to fight it–while using “wealth creation” in a way that is tortured enough to be logically consistent to him while tricking people into ignoring what he’s about.

      One last thing.

      It should be obvious at this point why it’s funny that he should mention Baumol’s Cost Disaster (or to Graham, Baumol’s Effect):

      He’s saying that the market inefficiency created by firms attempting to retain labor (e.g., raising wages to prevent firm-hopping) is actually the creation of wealth…because to somebody who’s business is literally buying and selling talent and market opporunity, it is.

      For the rest of us, for small businesses trying to make payroll or employees trying to avoid getting screwed over on salary because they aren’t the anointed assets, it’s pretty obvious that it’s just a distortion that is hurting our industry.

      tl,dr: don’t learn about economic history from Paul Graham, who is neither objective nor thorough.

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        But, I like money.

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          Great critical write-up. Do you think that perhaps Paul Graham would be interested in replying to your counter? I guess not, but it certainly would be interesting to see read his reaction.

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            Paul Graham blocked my account on Twitter because I re-tweeted DHH. Don’t expect any counter.

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              The funny thing about that is he references DHH as a good example in this essay:

              http://paulgraham.com/vcsqueeze.html

              That and a Twitter debate were the only two results I got out of Googling both names. Funny stuff to see him exemplified in an essay in beginning then people blocked just for mentioning him.

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                @paulg blocked me too. No idea why, as it was long before his goons started their little war that involved me. Consider it an honor.

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                  It’s called a ‘Career Defining Moment’

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              There is no mention of the Vietnam War.

              I agree with you, but to be absolutely fair, he does mention it here (though admittedly in passing):

              In a way mid-century TV culture was good. The view it gave of the world was like you’d find in a children’s book, and it probably had something of the effect that (parents hope) children’s books have in making people behave better. But, like children’s books, TV was also misleading. Dangerously misleading, for adults. In his autobiography, Robert MacNeil talks of seeing gruesome images that had just come in from Vietnam and thinking, we can’t show these to families while they’re having dinner.

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                I’d missed that while focusing on other things–thanks for the correction!

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                Don’t mistake him for supporting wealth creation in any traditional sense, because that isn’t what he’s trying to sell you on. He’s trying to say, in a hamfisted shy-libertarian way, that we should ignore economic inequality because that’s the way it’s always been, that’s the way it’s supposed to be, and that we’ll endanger new wealth if we try to fight it–while using “wealth creation” in a way that is tortured enough to be logically consistent to him while tricking people into ignoring what he’s about.

                Paul Graham, in 2004, came out swinging as a Valley cheerleader when everyone thought that “startups” were this silly ‘90s thing that would never come back, like disco. He was right, insofar as he pointed out (during post-tech-bubble Bush-era malaise) that not everything about the late 1990s was bullshit. It’s the reason why he has the rep that enabled him to found Y Combinator. If it weren’t for that, he’d be a nobody just like the rest of us. However, I have to give him credit for (a) being right about something and (b) standing up for it.

                Paul Graham is a Silicon Valley Exceptionalist. He believes that the robber barons of the past were One Type Of People, and that people who made money in computer businesses after 1995 are A Different Type Of People: it used to be that rich people were clever winners of zero-sum games, but This Time It’s Different, and these new rich people (because they’re poorly dressed, therefore they must be sincere) are The Good Kind and you should all worship those Wealth Creators (“Job Creators” didn’t test well; too blatantly patronizing and Republican).

                In other words, I don’t think that he was maliciously pushing for more economic inequality so much as he really believed that the Silicon Valley elite was a fundamentally different (and morally better) kind of economic elite. Of course, one could argue that this was self-serving given that he was boosting the elite he managed (through dumb luck) to become a part of, while trashing all the other elites (historical and extant) that he wasn’t a part of…

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                  I give them credit for creating methods that crank out good startups like Ford’s processes cranked out Model T’s. Past that, they’re only a little better than prior elites while still not actually elites yet. They dont understand what it means to be one. The elites write laws and get tax dollars as contracts. Microsoft, Oracle, and eBay founders are already there with Google, Amazon, and Paypal going in that direction. Most just think wealth and VC = elite. Nope.

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              I’m going to just let Tim Oreilly speak on this one as he destroyed Graham’s position in income inequality with some hard realities. Here’s that essay with points that still apply here.

              https://medium.com/the-wtf-economy/what-paul-graham-is-missing-about-inequality-a9f7e1613059

              Graham talks of fragmentation but Tim and I each talk of cartel-like behavior at the top that drives most of the problems. One can’t simply leave those out of a discussion that tries to get to the bottom of what’s happening in America. Not unless they either use terrible sources for their information or are pushing disinformation on purpose to serve a financial agenda that might make them billions off workers making jack shit. I’m leaning towards the latter just because that’s so common in business.

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                It would be nice if some of this were true. But we aren’t living in an era of fragmentation; we’re living in an era of consolidation. The rate of new business formation collapsed in the recession and hasn’t recovered. The economy is increasingly dominated by big, old firms.

                https://www.washingtonpost.com/news/on-small-business/wp/2015/02/12/the-decline-of-american-entrepreneurship-in-five-charts/

                http://fivethirtyeight.com/features/atts-merger-could-be-a-bad-sign-for-the-economy/

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                  Whew.

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                    I find it sad that a polemic following a smart guy’s out-loud philosophical reflections in an essay has caused so much trouble. So the guy veered a bit and stepped on some political toes metaphorically, and showed some undergarment’s color. A shouting match ensues. Banning here, vitriolic comment on that site. Now he’s gone silent since; I find it too bad because his reflections were worth the reading.(personally not drinking the SV–YC cool aid mind you)

                    Where has the art of agreeing to disagree agreeably gone? Where has the conversationalists retreated? I logged out of HN when the news list, voting and comments became more polarized. Now everything seems like a static-charged firebomb. Is this how a run-up to another large WW conflict feels like?

                    not taking position, just thinking for the good of a peaceful place we try to keep it open ended, forward looking, Eh?

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                      I might be missing what you mean, but what does “banning here” refer to? Bans on lobste.rs are all logged publicly and only two users have been banned in many months, both purely for spamming.

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                        Sorry I was not clear, not here with ref to lobsters but as in “here and there”. (Twitter HN etc) I think public listing of bans is wise.

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                        I’m not sure what you’re talking about. This site was partly created in response to Graham’s habit of banning opponents in various ways. He seems to have knocked it off a bit since this essay and Income Inequality discussions got tons of flack aimed at him by both fans and opponents without consequence that I saw. For example, some of the top and middle comments in HN version of this oppose Graham’s position:

                        https://news.ycombinator.com/item?id=10826836

                        He has plenty of chance to speak as he owns the site. He just doesn’t show up. On I.E. debate, he posted a second essay trying to clarify and justify his position that didn’t impress much either. Idk if he’s blocked from joining Lobsters but he voluntarily avoids discussion on many of his essays on HN. I think he’s just into doing his businesses and recently spending time with kids more than online arguments. He probably just speaks his mind not caring how much people disagree. Happens to a lot of people as they get older. Even I’m into way less shouting matches than 10 years ago because I wisened up a bit. ;)

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                          Yeah it’s the “debate” “banning” etc angle that I deplore I guess. From my pov PG got so much flak, as you put it, that he decided not to share his essays anymore. I’m positing that maybe if we’d keep it cooler we could have a wider conversation instead of ppl withdrawing or getting banned? I personally find that these last few years have been about a balkanisation of the public discourse and polarization of positons FWIW. Cheers, don’t ban me please. :/) Lobster.rs is great.

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                            I can’t imagine somebody getting banned from lobste.rs for saying something to the effect of “we should agree to disagree and discuss this politely”.

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                              Cheers, don’t ban me please.

                              You’re not trolling, and are discussing this in a polite and reasonable manner. I wouldn’t be too concerned about being banned. ;)

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                            Is this how a run-up to another large WW conflict feels like?

                            WW as in World War? I’m confused.

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                              Yeah. A large scale conflict. If you ask me, It does not feel like we’re on a path for collective enlightenment and detente as has occurred post Cold War, but rather the opposite. I hope and wish I’m wrong. Last words on this as lobsters is most def not a place to discuss world news.

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                              Paul Graham’s goons– to wit, Dan Gackle, Paul Buchheit and possibly Marc Bodnick although it’s not clear that he had a choice– tried to destroy my life in late 2015. This is well documented on Quora, and it was completely bizarre and unreasonable. It was Trumpianism on their part, before anyone took Donald J. Trump seriously.

                              They failed, obviously, leaving me– and them, I must note– standing.

                              The world is better with PG in a spider hole like a disgraced dictator. No doubt there.

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                                Got a link to that Quora thread?

                                Edit: There’s a flood of comments on Quora about you to the point I cant make sense of anything. Now Im doubly curious if you have links showing whatever you were doing with the others' reactions.